Srinath Sai Ram
Hr Manager
+1 Other

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Dear Concerns,
I am Working as HR Executive in SME.
We are right now facing some Issue regarding Leave Encashment of Employees. Please let me give you brief idea about our present Practices.
1. We are Giving 21 Leaves (PL) to all permanent Employees. and we are following Practice to settle Leave Encashment Every two years.
2. No other CL or Medical Leave Benefits given to Employees.
3. In Previous year we use to Encash Leave Payment as per Employee's Gross Salary. But as per my Knowledge Rules says to Encash Leave based on Basic+DA.
4. We are facing argument from employees not to process Leave Encashment based on Basic+DA because they had worked for company on full day basis and not taken leaves on those days.
5. also as we are SME so not able to afford leaves of some employees due to limited manpower.
6. We need to firm very strong policy on same with Win/Win Situation.
Please let me know what should be right in this case.
Awaiting for your valuable Response In this case.

Dear Viraj, Please elaborate your Statement " But as per my Knowledge Rules says to Encash Leave based on Basic+DA." Which Rule you are referring to? can we have Rule for clarification
Basic + DA for Leave encashment as per my knowledge. As a HR do keep the Rule material with you to let everyone clear on the concern.
Components to be considered for Leave Encashment:Last drawn Monthly Gross Salary.Refer to applicable Laws:Factories Act & Rules/Shops & Commercial Establishments Act & Rules
Dear Vijay,
It is not just Basic + DA which makes it as Leave Encashment Amount. It is more than that.. it is the amount which you generally earn in a day if you would have worked. Let me tell you how.. This is govern by the Shops and Establishment Act.. More or less each shops and Establishment Act says the same about it.. Basically logic is the same.. I am telling here as per provisions of Delhi Shops and Establishment Act. As per Section 22 (2) of the act
(2) If an employee entitled to leave under clause (a) of sub-section (1) of this section is discharged by his employer before he has been allowed the leave, or if, having applied for and having been refused the leave, he quits his employment before he has been allowed the leave, the employer shall pay him full wages for the period of leave due to him.
As per the above definition an employee is entitled for Full Wages for the period of Leave due to him.
Now let us see as to what does the Act says about the definition of wages... as per section 2 (30)
“Wages” means wages as defined in section 2 of the Minimum Wages Act, 1948 (XI of 1948);
Lets see the minimum wages definition of Wages... Section 2 (h) says
(h) "wages" means all remuneration, capable of being expressed in terms of money, which would, if the terms of the contract of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment, 1*[and includes house rent allowance], but does not include--
(i) the value of--
(a) any house-accommodation, supply of light, water, medical attendance, or
(b) any other amenity or any service excluded by general or special order of the appropriate Government;
(ii) any contribution paid by the employer to any Pension Fund or Provident Fund or under any scheme of social insurance;
(iii) any travelling allowance or the value of any travelling concession;
(iv) any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or
(v) any gratuity payable on discharge;
So as per the above definition all remuneration expressed in terms of money will be paid to the employee for leave encashment.. and this is the reason all statutory deductions are done from the leave encashment amount.
So in layman's term the Leave Encashment amount of one day shall be one day salary of a Workman. Hope things are clear now..

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